Rental Financing 101: Mortgage & Refi Tips for New Investors (Rookie Reply)

Is moneyWe’re tackling some of the most common financing dilemmas that new investors face in this episode of Real Estate. Rookie reply from navigating FHA loans with inconsistent income history to deciding if sacrificing that amazing interest rate is really worth it for expansion.Yeah, I mean, today’s questions really showcase the true crossroads that so many new investors counter. We’ve got a college student with perfect credit and decent savings trying to make that first crucial move. And we also have a couple who’s kind of hit their stride with one property, but they’re kind of facing tough decisions about how to leverage their primary residence for growth. Plus we’ll tackle what to do when a tenant insists on plugging their Tesla into your property’s dryer outlet, believe it or not.So whether you’re saving up for your first deal or really just trying to figure out how to scale your portfolio, today’s episode gives you practical advice. You can apply immediatelyAnd honestly, what makes these situations so interesting is that there’s rarely a perfect answer. So we’ll walk through the pros and cons of each scenario and really help you think through the considerations that matter most.I am Ashley Kehr,And I’m Tony j Robinson.Welcome to the Real Estate Rookie Podcast. Today we have our first question from Ethan Tomlinson from the BiggerPockets Forums. So Ethan says, hi. I am a 22-year-old college student at BYU. I’m looking to house hack in southeast Idaho. It’s been a dream of mine to house hack the moment I have learned of it, which was four years ago. So when he was 18. I’m wondering if anyone can help with the process of getting your first house hack cost, getting pre-approved for an FHA loan, who to talk to first, et cetera. I have two part-time jobs and I have no debt. I only have to pay for groceries and gas right now. So I’m able to save about 2300, 20 $500 each month after paying my living expenses each month. Here are some other things to know. My current savings are about 20 K and I have 4K in a Roth.
My credit score has been 750 plus we’re quite some time now. I have only had my two part-time W2 jobs for about a couple months before then. A lot of my labor was 10 99 or just being paid cash if I remember correctly. You need two years of income to get approved for an FHA loan. Generally, what steps should I take to inch closer to obtaining a house hack? It’s killing me more and more not being able to start this. I definitely haven’t done any deal analysis in a while with the calculators, but I used to a lot years back. Hey, so first of all, this is always awesome when we get someone really young that instead of out drinking and partying at college, they’re mad that they’re not house hacking yet.Yeah, I think definitely kudos some just to be that age and are to be focused on this and putting money aside, it’s it’s major. I don’t know Ashley, I think if I were him, probably where I would start is just understanding what my actual purchasing power is. What can I actually afford? Currently you talk about how much you’re able to save and what your current savings are, but we don’t quite know what your income is. It is true that more job history is typically going to make it easier for you to get approved for a mortgage, but also say that there are lenders out there who won’t necessarily need two years of income to get you approved, right? If you can show and prove or your income in different ways or different lenders have different things that they’re looking at. So I think the first thing that I would do is go talk to as many lenders from you can go to the big banks, but also go talk to the small local regional banks. Honestly, naca, I’ve talked about NACA quite a bit. We’ve interviewed guests who have used that loan product. I think that will be great in your situation as well. But that’s where I’m starting Nash is knowing how much loan can I get approved for.So we have a place biggerpockets.com/lender finder to actually get it pre-approved and I think after your purchasing power, a great next step is to talk to a real estate agent and finding an agent who helps other people house hack. I think when you talk to agents, you can say, how many clients have you helped in the first year? Get a house hack, asking them specifically how many not. Have you ever helped someone get an house hack, but see what their experience is and then ask them questions about house hacking to really get a feel if they are knowledgeable about this, because this seems like this would be a huge advantage to you if you got an agent to not only help you find a deal to close on the deal, but also could help you along the process of what would make a good house hack too.
Whenever you’re looking for a real estate agent, you want to understand what those things are that you actually need from the agent. So for me, I need the agent to drop the contract, do the paperwork, schedule things. I don’t want to do any of that. If you’re a new investor, there are so many investor friendly agents that can help you answer questions about the market. They can tell you what you could actually get it for rent, but you want to make sure you’re actually talking to the right person. If you’re talking to an agent who primarily sells primary residence, they’re probably not going to have as good of a grasp onto what places rent for in the area. They could look it up, but somebody who’s actually helping investors even rent their homes, purchase them or find them that they’ll have a better understanding of what that information would look like.And I think once you’ve nailed down that piece of putting at least your initial team together with your agent, then it comes down to really narrowing down your buy box. Just because you know want to house hack, there’s a lot of variance within that to know what type of property you’ll actually end up buying. Are you looking for small multifamily ash? And I just did an episode on why that works really well. Are you looking for just a single family home? If it is a single family home, do you want a two bedroom where you’re living in one bedroom rinsing out the other? Or do you want a six bedroom where you got a lot of extra space to rent? Do you want a home with a basement or an A DU? What type of property are you actually looking for? I think will be the next step, but I don’t think you can really answer that question until you get a better sense of that first piece, which is how much loan can I get approved for? Right? Because if say you want to buy a six bedroom house, but you only get approved to go out and buy something half that size, well now you’ve got a natural constraint on what your buy box could be. So identifying type of property location, what specifications do you need to make it worth your while?And also the part two about having two years of W twos for the FHA loan, my sister was able to get an FHA loan without even having a W2. She was a college student and then she got a job offer and just with her job offer letter, she was able to get pre-approved. So I would go out and I would talk to lenders. Maybe it’s not even an FHA loan, maybe there’s another type of loan product that would be good for you, but I would not let that stop me from getting my first house hack that you haven’t had two full years of a W income job.I think the only last thing that I’d add is obviously it’s super encouraging to see Ethan as a college student, so interested in real estate and I love the enthusiasm, but I think also Ethan is important to call out that you want to slightly temper that excitement and always kind of gut check or sanity check against the cold hard facts of whatever deal it is you’re looking at. You said you’ve been wanting to do house hacking for four years, which is great, but don’t let that excitement pull you into a deal that maybe doesn’t make sense. So still use the calculator, you said you’ve used ’em in the past. Make sure you’re using the calculators to identify does this deal actually pencil out and don’t buy something just because it seems like something that gives you the warm and fuzzies.We’re going to take a quick ad break, but we will be back with our next question. Okay, welcome back uni. What is our next question from the BiggerPockets forums?Alright, so this question comes from Lindsay and man, I have some pain just reading this question because it’s talking about low interest rates, but I’ll do my best to get through without tearing up on you guys. But it says, should I refinance my 2.25% primary residence, 2.25% primary resident to a 7.5% plus DSCR to get my equity out? Now she adds some context here. She says, I’m a new investor just close on our first rental. It’s a long-term duplex. We want to keep trucking down our investing road but have a few barriers. The first being we were retired, my husband out of corporate hell in September, yay. But going all in on my self-employed business as a financial therapist means two things. One, we don’t have a ton of extra income to be saving for our next investment property, and two, we don’t qualify for a conventional loan.
We bought our first rental with A-D-S-C-R with 25% down and an interest rate of 7.5 paid 199,500 and the monthly rent is 2150. It’s a pretty good deal. Additionally, as my business is fully remote, we’re moving to Costa Rica for one year, all of 2026, which means we’re going to rent out our primary residence. For context, our house is on a 15 year conventional loan with a 2.25% interest rate. We have about $170,000 of equity in the house, but because of our employment arrangement, we don’t have access to a heloc. And honestly, I don’t know if I would want to be super leveraged anyway, according to the lenders that I’ve spoken with. We can’t do a cash out refi either. I think as we plan to rent it out for all 2026, we could either refi into A-D-S-C-R loan, however we’ll be losing our 2.25% interest rate and moving to a 7.5% rate. But that $170,000 would give us the potential to buy a few more. Any help is appreciated. Lot to unpack here. First 2.25%, man, those were the days going to 7.5% would be a really big jump. I dunno, what’s your initial reaction, Ashley hearing this question?Yeah, that definitely is a huge transition and I’m trying to rack my brain for a way to get a HELOC on this property because honestly, just when the question started, that to me was the best scenario of getting a heloc. But I think that, okay, you have 170,000, what kind of purchasing power does that give you? So is that a down payment on a property? Is that an all cash purchase on a property? Is that buying two properties, the market that you’re investing in, what could you actually use those funds for? What would that actually deploy? So I think that’s kind of my first thing because my answer would change depending on that scenario too, but I think you got to really run the numbers first to see, okay, if you pull out that 170,000, your interest rate increases to seven and a half percent, what can you do with that $170,000?
So if say you purchase a property, it’s going to cashflow $1,500 a month, what is in your mortgage payment that you’re making every month compared to what you’d be making off the cashflow? So do they offset each other? Is the cashflow more than what that new mortgage payment would be? Is it less than what it would be in you’re actually not making any more money because that payment is so much higher? So I would definitely lay out the options and run the math on each scenario of what you could do with that 170,000 and if you had this new mortgage payment at the new rate on the property.Yeah, I think you read my mind. For me, it will come down to the numbers as well, right? Not only the difference in the 2.25% rate and the 7.5% rate, but also what kind of return do you expect to get on that $170,000 that you’re able to tap into? And if you’re only going to get a low single digit return, well it doesn’t make sense to actually go out there and deploy that capital. Now if you’re doing it for other reasons, but it sounds like you’re mostly focused on cashflow, but if you’re doing it because you want the tax benefits or maybe you’re doing it because you just want the appreciation, I guess that’s a slightly different play. But if it’s truly the cash flow that you’re focused on, you got to look at both what are you losing on the primary and then what are you gaining from return perspective by deploying that 170,000. And to Ashley’s point, it’s like how many properties are you planning to buy? Does that get you to one deal? Does that get you to two deals? Does it get you to three deals? And how does that cashflow stack up?I got an idea that came to me while you’re talking. They’re moving to Costa Rica, they’re going to rent it out for a year. When they come back, are they going to move back into their primary residence? Okay, so let’s say that they are. I don’t think it says that does it?It doesn’t say that they are. Yeah.Okay. So for this scenario, let’s assume that they’re going to rent it out for one year and then they’re moving back and it’s going to be their primary residence. Again, I would look at going and go ahead and do the DSCR loan, but look for something that has a very, very low fee. So what is going to have very minimal closing costs? Okay, so shop around, talk to different lenders, talk to different brokers. So they’re going to make you prepay a lot of expenses upfront. So those things won’t change, but compare loan products and which one actually has the lowest fees towards it. So you go ahead and you get the DSCR loan, you pull out that 170,000, you deploy it into something else. Then when you move back and it’s now your primary residence again, I would go to a small local bank, I would use one of their no closing cost loans and I would refinance back into a primary residence.
You’re not going to get that 2.25% interest rate, but it will at least decrease it from the interest rate you are getting, what was that seven point something? You’ll at least get a better rate than that with it being your primary residence again. So that is not best case scenario, but that is another option too as to where you are minimizing your closing costs, but you actually go and refinance twice. But that’s also assuming that rates don’t increase because once you move back from Costa Rica, rates could actually be higher and now you’re stuck with that payment and that interest rate. So it’s just one other thing to look at as to if that is an option. You could also see if there was a variable rate, so an arm mortgage available where you typically you’ll get a lower interest rate, but it’s only fixed for five, seven or 10 years and you could go ahead and do that right now and then go ahead and plan to refinance in the future back into a primary residence loan.
So those are a couple of options, but I would say I am assuming that this person has talked to one lender. If that is the case, go and talk to other lenders, go and see what other projects, tell them what you are doing and let them tell you what is available. You could get a commercial mortgage line of credit on the property potentially if you’re telling them that this is now going to be a rental. I have three rentals that have lines of credit on them that I can use to deploy to make purchases, things like that. So if you’re talking to one lender and maybe it’s the person who already has a mortgage on your bank or that you’ve worked with, go to even the commercial side of lending and see what you can do there. I think there’s a lot more options available, loan products or loan options, but just literally write it out in an email if you want, and copy and paste it to five different lenders in your area. You can go to biggerpockets.com/lender finder. You can search small local banks in your area, credit unions, tell them what you’re trying to do and see what people come back with as ideas for you.And you bring up really good points too, of them going back after this Costa Rica thing. Obviously I totally agree with you too on talking to more lenders, but if the challenge right now is that they just don’t have enough employment history per se, then I wonder if they just continue to focus on their small business while they’re in Costa Rica, they’ll have 2025 and then they’ll have all of 2026. So two solid years of them being self-employed, which for a lot of lenders is like that threshold that they’re looking for. So I wonder if you come back to Ashley’s point, you move back into your primary residence in 2027 and then now are you in a better position to maybe tap into some of that equity via heloc? So I don’t know if I would just jump the gun and give up this juicy 2.25% interest rate just for the sake of scaling quickly. I would really try and make sure, and to Ashley’s point that you’re exhausting all of your options before you because it’s going to be hard. You’ll virtually never be able to get that back.And instead of maybe taking on another property, maybe you focus on paying off that other property, the other investment property that has the D SCR loan on it already, and maybe you are going to pay that property off in the next two years instead of going and purchasing another property. That’s always something to look at.Alright guys, we’re going to jump to our last question, but we’re going to take a quick break before we do. But while we’re gone, if you haven’t yet, please be sure to subscribe to the realestate rookie YouTube channel. You can find us at realestate rookie on YouTube. We’ll be right back with more after this quick break.Okay, let’s jump back in with our last question today. So this question is, I have one of the units and my multifamily rented by the room by two tenants and the electric bills quadrupled compared to when I lived there. Turns out one of the tenants started charging his Tesla from the Tryer outlet when I found out we agreed that he paid $50 extra each month. The last couple of months he stopped paying that 50 and the bill continued to climb up $500 last month. This property is in Massachusetts. I can’t figure out why it’s so enormous as both tenants are rarely home and I have tried to pop in to see if appliances are left on nothing. So I clearly told him to stop charging his Tesla and that’s the only thing I can think of that drives up the bill Last night. The other tenant texted me a picture of the Tesla still being charged. The lease does not say anything about electric vehicles, but has a clause about wasting utilities. The heat is gas. So that’s separate. The Tesla tenant has not responded to my messages and I am guessing he’s going to continue to charge his car because it’s very convenient for him in his words. Otherwise he’s a good tenant. Any advice and how you’d address it? First of all, Tony, you have a Tesla, is your electric bill $500 per monthOnly during the summer because you run the AC so much, but never because of the charging for the car. SoLet me ask you, how much would you say that your electric cost each month for your Tesla?It’s honestly pretty negligible. If I compare our electric bill before the Tesla and after, it’s a very negligible increase. So I’m not entirely sure that it’s the Tesla.Maybe does it have this one could be because they’re putting it in the dryer outlet where the actual Tesla chargers are more energy efficient maybe. I dunno,Highly possible, right? Because we have the actual charger at our house. So it could be that they’re just doing the wall plugin and maybe it’s eating up more juice. So I can’t say with the high degree of certainty that it will be the single thing that’s spiking the bill. So I think two things come to mind for me. First I would call it the electric company and ask ’em if they could send someone out just to see if they notice anything that might be causing this. To say like, Hey, something is off here to for extra electric bill. Mine definitely did not do that. So something else must be going on. So I would ask the electric company come out, have them take a look. I would have an electrician come out, have them take a look and just start trying to root cause what’s actually going on here.
So that’s the first thing. Get some professionals out there to give you their opinion. But second, and this part is just kind of weird, but this person says that the last couple of months he stopped paying that $50. He didn’t say why. It seems like the tenant just decided, I’m not going to pay this anymore, but I’m still going to charge my car. I feel like that’s also an issue that needs to be addressed because Ash and I talk a lot about setting expectations for the people that come into your properties right now, you are setting the expectation that the tenant, even though you’ve agreed to something, can stop doing that on their own accord. And that is a slippery slope because right now it’s the Tesla charging, what if it’s your rent next month? And he is just like, eh, I don’t really feel like paying rent next month. And it is just ignoring your messages. So I think there’s two things you need to handle. Get some professionals out there to assess the electrical issue, but then also really reset expectations with your tenant around, Hey, we came to an agreement. I need you to honor this agreement.There’s one other thing that stood out to me too is the, I’m stopping by to see if appliances are left on. So I mean, does that mean you are looking in the windows, you’re walking around the house to see if the AC is running and no one’s home? So I wouldn’t do that. I wouldn’t recommend that. Plus, you don’t want to, you’d have to be that landlord that has to constantly go to the property. And I think calling out a professional that can help you assess the situation is great advice from Tony as to how you could figure out why this is. I wonder there’s got to be some kind of monitoring some thing with all of the home gadgets and things like that. They have the things that go under the sink that if you have a water leak, they’ll set off an alarm and you can get a notification on your phone that there’s water leaking.
I wonder if there’s something like that where when there’s a surge of electricity being used, you could hook something up to your electric panel to get notified that right now there’s more usage than the night before the virus something. Yeah. I wonder if there’s any technology. So if you’re watching this, you’re on YouTube, please leave a comment below if you have a good gadget or tech device that could actually help assist in this situation for the electrical issues. Well, thanks so much for listening to this episode of Ricky Reply. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode.